Asia Tea Time - Cup 67 ☕

August 25, 2024 • Estimated Reading Time: 6 minutes

This week I talk Walmart’s sale of its JD.com stake and why choosing quality when we make purchases can end up saving us money in the long term. 

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Macro in Asia

Walmart sells its stake in JD.com for US$3.6 billion

The world’s largest company by revenue – Walmart Inc (NYSE: WMT) – earlier this week sold its entire stake in Chinese e-commerce giant JD.com (NASDAQ: JD) (HKEX: 9618) for US$3.6 billion.

Walmart wants to focus on expanding its own brands further – including its Sam’s Club unit that offers warehouse-type prices on goods for customers in exchange for an annual membership fee.

Why it’s happening

  • Walmart had started accumulating an interest in JD.com in 2016, when it acquired a 5% stake in the Chinese e-commerce operator. It later increased its stake to just over 10%.

  • The American retail giant now feels like it wants to focus on its own China operations without having to rely so much on JD.com’s logistics infrastructure and customer-facing online presence. 

  • Indeed, Walmart has built up its own app in China as well as establishing and growing a warehouse network – all in order to meet the massive demand for its Sam’s Club membership in the world’s second-largest economy. 

Why it matters

  • JD.com has always been seen as the Amazon.com of China, given its early reputation for reliability and solid logistics infrastructure versus its main rival Alibaba.

  • However, this latest stake sale from Walmart highlights just how competitive the e-commerce landscape is in China and how partnerships no longer matter so much. 

  • Investing success in the e-commerce arena in China is also no longer as simple as just backing the biggest and most obvious players in the space. 

What’s next?

  • China’s e-commerce companies have seen their share prices plumb multi-year lows, alongside hitting rock-bottom valuations. But the big question to ask is if investors can be persuaded that there’s a turnaround in sight. 

Tim’s Take 

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Walmart, and many other Western companies, had long relied on partnerships with local Chinese companies to more effectively penetrate the enormous China market.

Even a giant like Walmart, that has had a presence in China since 1996, felt the need to cosy up to JD.com as the latter took on the early might of Alibaba.

But, as with any industry in China, things are fast-moving and evolving constantly in e-commerce. Both JD.com, and Alibaba, aren’t the formidable e-commerce giants of yesteryear. 

In fact, analysts at Goldman Sachs now estimate that Pinduoduo (NASDAQ: PDD) has now overtaken JD.com as the second-largest e-commerce company in China.

That’s been mainly down to slowing growth from JD.com, with its Q2 2024 revenue up just 1% year-on-year. 

Whenever a retailer offers big discounts to boost its bottom line – as JD.com has done – that’s never a good sign of confidence in their business model or prospects.

As for Walmart, it’s been a rare example of an American company thriving in China’s fragile economic and geopolitically-tense environment.

It might not be a surprise though. Sam’s Club has built up a reputation as a destination for quality in bulk and its membership model is something that Chinese consumers are increasingly willing to dish out cash for.

The recent astounding success of Costco’s own new warehouse-type store in Shenzhen – that opened at the beginning of 2024 – highlights just how well these two retail giants are navigating the complex retail environment in China.

So, while the likes of Starbucks and Nike continue to struggle against their more localised (and popular) rivals in China, Walmart has bucked the trend by disrupting the e-commerce incumbents.

Tim’s money tip of the week

Focus on quality when you spend on items that matter and which need to last. It’s an important part of the spending decision-making process when we make a purchase. 

Imagine those t-shirts or tops from Shein. Yes, they may cost only $3 a pop but how long do they really last? 

Typically, clothes from “fast fashion” type of brands will start to fall apart after a set number of washes – meaning you’ll have to replace them sooner. The same goes for similar items like shoes.

It’s surely better to spend more on quality that lasts longer and which provides even better comfort. Of course, all this comes with a higher price tag but over the long run, with the amount of shoes/clothes/accessories we work our way through, it will save us money.

So, while certain items out there might not need us to focus on quality, many certainly do. If it’s something you see yourself using/wearing a lot then shelling out some extra money for a quality product is definitely worth it in the long run.

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